Kanpai! TPP could help Japanese craft brewers and U.S. grain growers

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International trade affects most industries. While some go unnoticed by the general public, some have a large impact on hundreds of millions of lives every day. International trade law governs and facilitates the movement of everything—from equipment to medicine, food, and even water—across national borders. Beer is one such good. While most people are familiar with the idea of imported beer, fewer have considered imported ingredients. At its most basic, beer is made from water, yeast, hops, and malted grain.[1] Beer manufacturers all over the world mix and match the origins of each ingredient to create new flavors, or recreate a foreign favorite.

Malt, essentially grain that is ready to be fermented,[2] is arguably the most important ingredient in beer, influencing everything from taste to alcohol content to color of the end product.[3] Barley is the most popular grain for malting,[4] but other grains such as wheat, rye, corn, and rice may also be used to make beer.[5] A country without such grain readily available instead relies on imports. For that reason, one particular treaty has been creating a buzz of excitement in the American grain industry – the Trans-Pacific Partnership.[6]

The Trans-Pacific Partnership

The Trans-Pacific Partnership (TPP) provides a long-sought-after connection between the world’s largest exporter of wheat, the United States, and one of its largest importers, Japan.[7] American producers hope that the new agreement will revitalize the export market for grains.[8] By lowering trade barriers, the partnership hopes to increase trade between the signing countries, and create a better trade environment for producers of goods to be exported.[9] The agreement is a welcome change in the struggling American wheat industry.[10]

Japan has a number of tariffs on imported goods.[11] Various treaties over the last few decades have attempted to chip away at trade barriers to better facilitate international trade. In 1994, the World Trade Organization (WTO) was established,[12] and in 1995 both the United States and Japan joined the global network it created.[13] In the six-year “Uruguay Round,” the WTO created a comprehensive multilateral agreement dedicated to agriculture.[14] In 2001, the “Doha Round”[15] set broad objectives for trade and market access,[16] and in 2004 frameworks were established to achieve the organization’s agricultural goals.[17]

Barley Field
Ripening barley in the Pacific Northwest. Barley is the primary malting grain for most beer.
Japan already accounts for 66% of U.S. barley exports, and could begin importing even
more if both countries ratify the TPP. (Via Wikimedia Commons)

The Trans-Pacific Partnership builds on WTO members’ rights and obligations and seeks to improve market access, eliminate export subsidies, reduce distorting domestic support, sort out a range of developing-country issues, and even deal with non-trade concerns.[18] In the TPP agreement’s text, the signatories expressly incorporate the General Agreement on Tariffs and Trade (GATT),[19] an agreement incorporated into the WTO.[20]

The Trans-Pacific Partnership has the makings to be one of the most influential trade partnerships in the world. Signed in February, the TPP is extensive, covering everything from the trade of automobiles to services, and the elimination of tariffs.[21] Altogether, the treaty covers about 40% of the world’s economy.[22]

In December, the U.S. Agricultural Technical Advisory Committee for Trade in Grains, Feed, Oilseeds, and Planting Seeds released a report on the degree to which the TPP was expected to promote U.S. economic interests (“Grain Report”).[23] The other parties to the “agreement represent a large market for U.S. grains. . . , and they will be an even larger market for these products under the concluded agreement.”[24] The Grain Report examined the partnership’s potential effect on different grains and grain products, analyzed each by region, and warned that without the agreement American producers would risk a competitive disadvantage vis-à-vis other nations with trade agreements.[25] The report included an analysis on multiple grains that could be used for beer production, focusing on wheat.[26]

The Grain Report suggests the Partnership could provide more market opportunity for American wheat producers in trade with Japan in particular.[27] The U.S. grain industry accounts for billions of dollars per year,[28] and wheat alone accounts for millions of dollars.[29] The United States is the world’s largest wheat exporter,[30] despite producing a relatively small percentage of global wheat.[31] Most American wheat exports go to Japan, “the largest export market . . . , valued at $925 million in 2014.”[32] U.S. exports account for 60% of Japan’s imported wheat.[33]

Despite the already-established trade connection, American wheat could benefit from reduced trade barriers. The American wheat trade peaked in 1987/88 when both China and the Soviet Union were importing large amounts.[34] Thereafter, demand from those two major importers slowed, and the demand from developing countries was not enough to make up the difference.[35] The export market continued its decline in 2003, when the European Union established trade barriers for lower-quality wheat.[36] A couple of years thereafter, in 2005/06, the demand increased slightly, but fell the next year due to high prices.[37] In the last few years, prices of American wheat have reached “unprecedented” highs.[38] It is difficult to predict the future market for the industry,[39] but profitability has been declining,[40] and fewer acres are being devoted to wheat growth as a result.[41]

The U.S. government argues that the TPP is necessary for the U.S. wheat industry to remain competitive in the international market.[42] Even though Japan is a major importer of American wheat, trade barriers remain between the two countries. One such barrier is a “mark-up”; even though wheat is imported into Japan without a “tariff”, Japan’s Ministry of Agriculture, Forestry, and Fisheries (MAFF) assesses a ‘mark-up’ of 17 yen per kilogram (equivalent to $150 per ton) that is charged to the buyer. . . .”[43] The TPP requires a revision of this practice, and an eventual phasing-out of such barriers.[44] The TPP requires Japan to establish a new “country-specific quota” for the United States, which creates exclusive, new opportunities for U.S. suppliers.[45] Because the quota is country-specific, the American producers will enjoy a relatively low trade barrier.[46] Japan has previously avoided such negotiations for the reduction of tariffs on wheat.[47] Through the TPP, Japan will lower its mark-ups on wheat by forty-five percent over the next nine years.[48]

Although much of the focus has been on American wheat, it remains unclear to what extent repealed Japanese tariffs will improve that industry. Japan has recently joined a number of other nations rejecting American wheat in an effort to ban genetically modified foods.[49] This is not to say the partnership will not positively impact American grain producers, or that American wheat will not find its way into Japan. However, the tides could be turning in favor of another grain that is already quite popular – barley.

Although barley makes its way into industrial products and a wide range of foods for both humans and livestock, most barley produced in the United States is a premium-quality product that can be used for malting.[50] Barley is produced and exported on a smaller scale than wheat, but American production, and Japanese consumption, is nonetheless substantial. The United States is consistently a top-ten producer of barley, and exports in large quantities to its fellow signatory of the TPP, Japan.[51] Japan is the world’s third-largest importer of barley;[52] the country consistently imports about eight times the amount of barley it produces.[53] In 2014, Japanese imports of American barley were valued at more than $46 million.[54] While this represents only a fraction of the total barley imported by Japan,[55] it accounts for 66% of U.S. barley exports.[56]

Ramen and Beer
While Japan is better known for its sake, or rice wine, beer has become its alcoholic
beverage of choice in the last generation, particularly at ramen-noodle shops and pubs
like the one shown here. (Via Wikimedia Commons)

The Trans-Pacific Partnership can provide American producers more opportunity in barley production and export. The partnership would, as with wheat, break down trade barriers, and would also help to facilitate expansion.

The Japanese Beer Market

One reason for Japan’s strong demand for barley is the fairly young, but thriving micro-beer industry. Since the mid-1990s, Japan has been a leader in the East Asian craft-beer scene,[57] and is now the seventh-largest beer producer in the world.[58] It is also the third-most profitable beer market in the world.[59] Beer has become Japan’s most popular drink in the last generation,[60] and the island nation boasts more than 200 microbreweries.[61]

The Japanese beer industry actually began in 1853.[62] However, in 1908, Japanese tax laws required that breweries produce a minimum of 180Kl, excluding micro-producers.[63] The minimum was reduced to 60Kl in 1994, allowing smaller manufacturers to finally enter the market.[64] Japan immediately started to see small-scale breweries, though not all produced good-quality brews.[65] As craft beer grew in popularity, brewers started looking to American beer for inspiration.[66] There are multiple Japanese brewers who trained in the U.S., [67] and one of the most well-known and highly-respected microbreweries, Baird Brewing Company, was founded by an American.[68] It is significant that American craft beers are inspiring their Japanese counter-parts, because American craft beer uses a lot of malt.[69] In the U.S., the average amount of malt per barrel of craft beer is 68.7 pounds, about four times the amount of malt used in non-craft beer.[70] Japanese microbreweries also probably use more malt per barrel than the non-craft producers due to the styles of beer produced.[71]

Thus the growing Japanese micro-beer industry depends on imports. Brewers are notorious for keeping their brew recipes close to their flannel cuffs, and for good reason – the recipes are what make their beer unique and marketable. However, brewers do use imported grains.[72] The industry is helped by the Japanese stance on beer imports. Japan classifies beer differently than some other countries, and does not consider varieties with such little malt in them as some European brews to qualify as beer.[73] While Japan is free to enter into outside agreements with the European Union to alter its stance, the Trans-Pacific Partnership has no bearing on the matter. The partnership will, however, foster the trade of Japanese beers, and aid in the continuing growth of the market.

American producers of barley and other grains are now in a great position to grow within the Japanese beer market. The elimination of tariffs through the partnership will probably help keep the price of barley manageable for small breweries, and will provide more opportunities to American producers to sell their barley and malt through the existing and profitable trade channel.


[1] See Beermaking: Our Process, Portsmouth Brewery, https://portsmouthbrewery.com/beer-food/whats-on-tap/beermaking-our-process [perma.cc/LZ99-23RK]; see generally Reinheitsgebot [Order on Purity], 1516 (Kingdom of Bavaria) (banning ingredients other than barley, hops, and water), English translation available at http://www.brewery.org/library/ReinHeit.html [https://perma.cc/4L8B-JQVE]. But see Malt & Adjunct Guide, Beeradvocate, http://www.beeradvocate.com/beer/101/malts [https://perma.cc/C44B-XHP5] (briefly discussing the possibility of using unmalted barley and other grains).

[2] Malt, http://allaboutbeer.com/learn/beer/malt [perma.cc/FQ33-AY5M] (last visited Feb. 1, 2016). Malt is made by allowing grains to germinate, which converts starches, complex carbohydrates, to various sugars, which are simpler carbohydrates. The Brewing Process, Sint-Sebastiaan Belgian Microbreweryhttp://www.sterkensbrew.be/sbm/beer_making.html [perma.cc/2EAL-V86B]. The sugar is what ferments in the beer-making process. Beermaking, supra note 1.

[3] The Brewing Process, supra note 2 (noting that the degree to which the grains are roasted also affect beer’s flavor and color beer).

[4] Malt, supra note 2.

[5] The Brewing Process, supra note 2. Corn and rice are non-malted grains. Id. Corn and rice are sometimes used as “adjuncts,” a way to adjust the feel and taste of the end product. See Using Adjuncts in Beer, More Beer, https://www.morebeer.com/articles/brewing_with_adjuncts [perma.cc/6XKG-52JX] (last visited Feb. 1, 2016) (providing information on different grains used to make beer). Adjuncts can be malted or unmalted, the difference being whether the adjunct contains enzymes. See Adjuncts Explained, https://byo.com/mead/item/94-adjuncts-explained [https://perma.cc/TL35-APWY]. Enzymes help to break down the starch in the grain. Id. Corn and rice lack such enzymes, but can be used with malted grains, such as barley, that have a surplus of enzymes. Id.

[6] TPP Deal Struck – And Why It Matters For U.S. Grain Farmers, U.S. Grains Council (last viewed Feb. 1, 2016), http://grains.org/news/20151008/tpp-deal-struck-%E2%80%93-and-why-it-matters-us-grain-farmers [perma.cc/YP9A-HA5A]; see also Release of TPP text begins formal approval process, World Grain (Nov. 6, 2015), http://www.world-grain.com/articles/news_home/World_Grain_News/2015/11/Release_of_TPP_text_begins_for.aspx?ID=%7BE21FBB99-18C4-4C1B-9B4C-CBA1A7F2F107%7D [perma.cc/8JR6-ZYM8].

[7] See Trans-Pacific Partnership, Annex 1-A, available at https://ustr.gov/trade-agreements/free-trade-agreements/trans-pacific-partnership/tpp-full-text [perma.cc/V5UF-KNU6] (listing the parties to the partnership as the United States, Japan, Australia, Canada, Malaysia, Mexico, Peru, Vietnam, Chile, Brunei, Singapore, and New Zealand). The United States has not yet ratified the treaty as of Feb. 13, 2016.

[8] See infra nn. 32-42.

[9] See Trans-Pacific Partnership, supra note 7.

[10] See GFOPS Report on Trans-Pacific Partnership Agreement 1-2 (December 2015) (advisory committee’s report), available at https://ustr.gov/sites/default/files/ATAC-Grains-Feed-Oilseed-and-Planting-Seeds.pdf [perma.cc/3Y6F-FX3M] [hereinafter Grain Report].

[11] See id. at Annex 2-D.

[12] Marrakesh Agreement Establishing the World Trade Organization, Apr. 15, 1994, 1867 U.N.T.S. 154, § 20, Table A, available athttps://www.wto.org/english/docs_e/legal_e/04-wto.pdf [perma.cc/DZS5-Q7M3].

[13] Marrakesh Agreement Establishing the World Trade Organization, World Trade Org., https://www.wto.org/english/res_e/booksp_e/analytic_index_e/wto_agree_04_e.htm [perma.cc/UN8P-ZYFH].

[14] Agriculture: fairer markets for farmers, Understanding the WTO: The Agreements, https://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm3_e.htm [perma.cc/F22W-BDGW] (last viewed Feb. 13, 2016).

[15] 20th Anniversary of the WTOWORLD TRADE ORG., https://www.wto.org/english/thewto_e/20y_e/20y_e.htm [perma.cc/B3ZX-GCAH] (last viewed Feb. 1, 2016).

[16] Doha Round: what are they negotiatingWORLD TRADE ORG., https://www.wto.org/english/tratop_e/dda_e/update_e.htm [perma.cc/K8CR-2B25] (last viewed Feb. 1, 2016).

[17] Id.

[18] Trans-Pacific Partnership, supra note 7, Preamble.

[19] See id. art. 2.3(1) (“Each Party shall accord national treatment to the goods of the other Parties in accordance with Article III of GATT 1994. . . .”).

[20] GATT and the Goods CouncilWORLD TRADE ORG., https://www.wto.org/english/tratop_e/gatt_e/gatt_e.htm [perma.cc/YV2K-V3CN] (last viewed Feb. 1, 2016).

[21] See generally Trans-Pacific Partnership, supra note 7 (explaining treaty’s goals).

[22] Overview of the Trans-Pacific Partnership, Ofc. U.S. Trade Repr.https://ustr.gov/tpp/overview-of-the-TPP [perma.cc/N3CC-MRHY] (last viewed Feb. 1, 2016).

[23] Grain Report, supra note 10.

[24] Id. at 2.

[25] Id.

[26] Id. at 5-6, 8.

[27] Id. at 8.

[28] See U.S. Grains in all forms Exports, U.S. Grains Council, http://www.grains.org/market-data/feed-grain-exports-in-all-forms [perma.cc/W9J6-TQPD] (last viewed Feb. 6, 2016).

[29] See USDA Wheat Baseline, 2015-24, U.S. Dep’t Ag. (last updated Feb. 8, 2016), http://www.ers.usda.gov/topics/crops/wheat/usda-wheat-baseline,-2015-24.aspx [https://perma.cc/RNV3-R4CN] (showing wheat supply in millions of bushels and price consistently at multiple dollars per bushel).

[30] U.S. Wheat Trade, U.S. Dep’t Ag. Econ. Res. Serv., http://www.ers.usda.gov/topics/crops/wheat/trade.aspx [perma.cc/N47E-35PY] (last viewed Feb. 1, 2016) (“While a handful of nations dominate wheat exports, there are many wheat-importing countries. A few countries account for a large share of world wheat imports, including the EU-27, Japan, South Korea, and Brazil. However, most wheat is imported by developing countries with limited production potential. Population growth in Egypt, Algeria, Iraq, Brazil, Mexico, Indonesia, Nigeria, and other developing countries will be the basis of future expansion of world wheat trade.”).

[31] Id. (noting that “the United States produces only 10 percent of world wheat (1993/94-2007/08 average)).

[32] Trans-Pacific Partnership Benefits to U.S. Agriculture, U.S. Dep’t Ag. (Oct. 28, 2015), http://www.fas.usda.gov/sites/default/files/2015-10/tpp_details_wheat_10-28-15.pdf [perma.cc/RH8U-GN5Y].

[33] Grain Report, supra note 10, at 8.

[34] U.S. Wheat Trade, supra note 30.

[35] Id.

[36] Id.

[37] Id.

[38] USDA Wheat Baseline, supra note 29.

[39] Id. (“Long-term projections for U.S. wheat for 2015/16-2024/25 are heavily influenced by prospects for increased foreign competition in global markets and expectations for continued slow domestic yield gains. Both factors contribute to lower profitability for wheat than for other domestic crops. . . .”).

[40] Id.

[41] Wheat, U.S. Dep’t Ag. (Feb. 6, 2016), http://www.ers.usda.gov/topics/crops/wheat.aspx [perma.cc/CS3J-VKWJ] (The number of acres devoted to the crop has dropped by 30 million, about a third, since 1981.).

[42] Trans-Pacific Partnership Benefits to U.S. Agriculture, supra note 32.

[43] Id.

[44] See Trans-Pacific Partnership, supra note 7, Annex 2-D: Tariff Commitments.

[45] Trans-Pacific Partnership Benefits to U.S. Agriculture, supra note 32 (“Japan currently imports wheat via a state-administered, 5.7-million-ton World Trade Organization (WTO) tariff-rate quota (TRQ). . . .” However, under the TPP, “Japan will establish a new 114,000-ton, country-specific quota (CSQ) for U.S. wheat that grows to 150,000 tons in seven years.”).

[46] See id.

[47] Id.

[48] Id.

[49] Anna Edwards, America facing wheat export crisis as Europe and Japan lead the way in rejecting genetically modified crops, Daily Mail (May 30, 2013), http://www.dailymail.co.uk/news/article-2333381/GM-wheat-crops-America-facing-wheat-export-crisis-Europe-Japan-lead-way-rejecting-genetically-modified-crops.html [perma.cc/96FC-EJTV].

[50] Barley – Production and Exports, U.S. Grains Council (last viewed Feb. 13, 2016), http://www.grains.org/buyingselling/barley [perma.cc/65RU-RFDV].

[51] Id.

[52] Grain Report, supra note 10, at 5.

[53] Recently, for instance, it is estimated that Japan produced 182 MT of barley in 2013, and 170 MT in both 2014 and 2015. Japan Barley Production by Year, Index Mundi (last viewed Feb. 6, 2016), http://www.indexmundi.com/agriculture/?country=jp&commodity=barley&graph=production [perma.cc/L7R6-HQ3A]. Meanwhile, Japan consumed 1450 MT, 1300 MT, and 1450 MT, respectively for those years. Japan Barley Domestic Consumption by Year, index mundi (Feb. 6, 2016), http://www.indexmundi.com/agriculture/?country=jp&commodity=barley&graph=domestic-consumption [perma.cc/5QA4-47H9].

[54] Grain Report, supra note 10, at 5.

[55] Id.; see also 5 Most Common Teas in Japan, Wasabi (Nov. 20, 2015), http://wasa-bi.com/topics/751 [https://perma.cc/U9WT-ZGZ9] (including mugicha, a non-fermented barley beverage served cold, along with oolong tea and three types of green tea).

[56] Barley – Production and Exports, supra note 50 (referencing the twelve-month period ending May 31, 2015).

[57] The 10 Best Craft Breweries in Japan, Culture Trip (last viewed Feb. 6, 2016), http://theculturetrip.com/asia/japan/articles/the-10-best-craft-breweries-in-japan [perma.cc/4VCF-U879].

[58] Id.

[59] Open up to our beer, EU to tell Japan in trade talks, EurActiv.com (last viewed Feb. 6, 2016), http://www.euractiv.com/sections/trade-society/open-our-beer-eu-tell-japan-trade-talks-310151 [perma.cc/ARC9-GJM4].

[60] Japanese Beer, Beers of Europe (last viewed Feb. 6, 2016)http://www.beersofeurope.co.uk/japanese-beer [perma.cc/FHQ6-DLY8].

[61] Id.

[62] History of the Japanese Beer Industry, Brewers Ass’n of Japan (last visited Feb. 17, 2016), http://www.brewers.or.jp/english/09-history.html [https://perma.cc/L44E-CA5V].

[63] Id. The minimum amount was increased to 1,800 Kl in the 1940s, and then to 2,000 Kl in the 1950s. Id.

[64] Id.

[65] The past-and future-of Japanese craft beer, Draft (last viewed Feb. 17, 2016), http://draftmag.com/japanese-craft-beer-history-future [https://perma.cc/29R3-4NR8].

[66] See id.; see also The 10 Best Craft Breweries in Japan, supra note 57 (noting that Yo-Ho Brewing, in Nagano, was also inspired by the American beer scene).

[67] See The past—and future—of Japanese craft beer, supra note 65.

[68] Devin Stewart, Brewing in Japan: Interview with Bryan Baird of Baird Beer, Huffington Post (Jul. 7, 2010), http://www.huffingtonpost.com/devin-stewart/brewing-in-japan-intervie_b_660810.html [https://perma.cc/WFD5-L2DJ].

[69] Jennifer K. Bond et al, Expanding Craft Beer Production Boosts Industrial Use of Barley, U.S. Dep’t Ag. (May 4, 2015), http://www.ers.usda.gov/amber-waves/2015-may/expanding-craft-beer-production-boosts-industrial-use-of-barley.aspx#.VsTvMHQrJ-U [https://perma.cc/5MK2-8SEQ].

[70] Id.

[71] The large Japanese brewing companies mostly produce beer in the German style, which uses less barley. See The past-and future-of Japanese craft beer, supra note 65; see also Adjuncts Explained, supra note 5 (noting the malt in some German beers can be 75% wheat). 

[72] See, e.g., Bakayaro! and Inside Baird Brewery, Beer in Japan (last viewed Feb. 6, 2016)http://beerinjapan.com/bij/1043/bakayaro-and-inside-baird-brewery [perma.cc/3PXE-5GSQ] (providing an example of a microbrewery in Shizuoka, Japan, using a blend of English, German, and Belgian grains).

[73] Japanese Beer, supra note 60. 


Posted by Kathleen M. Cusack (Katie) on Thu. February 18, 2016 2:05 AM
Categories: Food and agriculture, Free Trade, Japan, Reports (longer, analytical blog posts), United States

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